Question: Exercise 1.12 Suppose that the variable x = x(t, z) at time t satisfies where (dz) 2 = dt. Applying Itos formula (Theorem 1.1), prove

Exercise 1.12 Suppose that the variable x = x(t, z) at time t satisfies

dx=x(udt+odz),

where (dz)2 = dt. Applying Ito’s formula (Theorem 1.1), prove that

image text in transcribed

Hint: Let f(t, x) = log x.

dx=x(udt+odz),

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